Media Mentions
2012
“Obama Targets Financial Fraud with Special Unit”
Investment News, January 29, 2012
Steven Scholes said that although a new financial crimes unit announced by President Obama has a “significant aspect” that is political and “designed to give the impression of being tough on Wall Street,” it is true that U.S. attorneys currently “lack the personnel to conduct a timely, thorough, efficient investigation of highly complex financial transactions and securitizations.”
Steven S. Scholes, White-Collar & Securities Defense
“Securities Cases to Watch in 2012”
Law360, January 1, 2012
Steven Scholes said that Securities & Exchange Commission subprime mortgage security cases against former top executives of collapsed mortgage giants Fannie Mae and Freddie Mack “are a prime example of the SEC’s efforts to show that the agency is aggressively pursuing individuals allegedly responsible for actions contributing to the housing/financial crisis.” Mr. Scholes also expected corporate whistleblower tips and enforcement actions to increase due to the Dodd-Frank Act’s “huge financial incentives for people to lodge complaints” – so many, he added, that the SEC “is going to have to rely on companies to do their own internal investigations.”
Steven S. Scholes, White-Collar & Securities Defense
2011
“State Regulators in U.S. Combine to Probe Structured Notes”
Bloomberg, October 24, 2011
Steven Scholes predicted that, although 10 states are investigating whether structured note debt instruments were marketed without adequate risk disclosure, “There’s already been so much scrutiny in this area that the states’ efforts won’t likely cause meaningful reaction from market participants.”
Steven S. Scholes, White-Collar & Securities Defense
“Ex-Diebold CFOs Eye Janus Defense in SEC Fraud Case”
Law360, August 19, 2011
Steven Scholes, on behalf of one of two former CFOs of Diebold Inc., asked an Ohio federal judge to allow use of the U.S. Supreme Court ruling in Janus Capital Group v. First Derivative Traders in objecting to a recommendation that federal fraud claims against the CFOs be allowed to stand. Mr. Scholes asserted that “Janus requires the court to dismiss all of the 10(b)5 and Section 17(a) fraud allegations,” which would gut the SEC’s fraud case. Serving on the McDermott team with Mr. Scholes are William Schuman, Jocelyn Francoeur and John Kocoras.
Jocelyn D. Francoeur, John C. Kocoras, Steven S. Scholes, William P. Schuman PC, Trial, White-Collar & Securities Defense
“Let the Whistling (Ahem) Begin”
Corporate Counsel, July 1, 2011
Steven Scholes predicted that the SEC’s new whistleblower rules, which allow employees to report suspected misconduct to the government before going to the company, will have negative consequences. “The SEC staff is going to be absolutely inundated, and the volume of reports is going to exceed the SEC’s resources to marshal, analyze and triage,” he said, adding that the rules will also “impose added costs and burdens on companies.”
Steven S. Scholes, White-Collar & Securities Defense
“Whistleblower Rules Could Set Off a Rash of Internal Investigations”
Compliance Week, June 1, 2011
Steven Scholes declared it is “unfortunate” that new SEC rules encouraging corporate whistleblowers to approach the agency directly “will cause companies to go to greater lengths to investigate marginal or non-meritorious claims that would otherwise not have required an investigation. That is going to impose a strain on compliance officers and legal departments, and expenses on companies.”
Steven S. Scholes, White-Collar & Securities Defense
“A Close Look at the New SEC Whistleblower Rules”
Corporate Counsel, May 27, 2011
Steven Scholes asserted that new SEC rules “provide substantial incentives for whistleblowers to bypass corporate compliance procedures in favor of going directly to the SEC with any concerns.” That means, he added, that the volume of complaints “is going to exceed substantially the SEC’s resources to marshal, analyze and triage those complaints,” while corporations will face “added costs and burdens” because complaints will be going to the SEC “that could’ve been dealt with internally” and companies will thus have “a felt need to at least go to outside counsel, when that may not have occurred before.”
Steven S. Scholes, White-Collar & Securities Defense
“SEC Whistleblower Changes Not Enough, Attys Say”
Law360, May 25, 2011
Steven Scholes asserted that the SEC’s final rules for its whistleblower program will “mean a huge influx of complaints to the SEC which bypass the internal compliance programs that many companies adopted” to comply with Sarbanes-Oxley. One key reason that Mr. Scholes cited is that anti-retaliation provisions only kick in once a tip has been passed to the SEC. Thus, he said, “All the incentives for a whistleblower really line up in going to the SEC, bypassing internal programs.”
Steven S. Scholes, White-Collar & Securities Defense
“Wiretaps Key in Conviction of Ex-Hedge Fund Giant”
Associated Press, May 12, 2011
Steven Scholes called wiretaps used by federal prosecutors to gain a conviction in a major insider trading case “a gold mine.” Added Mr. Scholes, a former attorney in the SEC’s Division of Enforcement: “There’s an old saying that you can’t cross-examine a tape.”
Steven S. Scholes, White-Collar & Securities Defense
“Whistleblower Rules and Attorney-Client Privilege”
Compliance Week, March 1, 2011
Steven Scholes advised any company conducting its own investigation of whistleblower allegations made to the SEC, “Don’t expect a direct or implied request for a privilege waiver from the SEC enforcement staff. Generally, under the SEC’s current enforcement program, the SEC staff does not seek such waivers.” He added that in most such circumstances, “the SEC staff will (to conserve its own resources) defer its own investigation to an internal investigation being conducted by the company.” The SEC could conduct a parallel investigation, Mr. Scholes noted, but “the best way to avoid this situation is for a company to conduct a credible investigation.”
Steven S. Scholes, SEC Defense, Securities Litigation, Trial, White-Collar & Securities Defense
“SEC Gets Into the Non-Prosecution Agreement Act”
Compliance Week, January 25, 2011
Steven Scholes, commenting on a clothing retailer’s decision to cooperate with the SEC’s investigation of a former executive in exchange for a non-prosecution agreement (NPA), said, “It’s a very savvy move by the SEC to adopt the use of NPAs … In exchange for agreeing not to prosecute, they are getting significant information out of the subjects of their investigations and will continue to do so.” He warned that companies seeking an NPA “are going to have to make educated guesses as to whether they’re going to get a non-prosecution agreement after they cooperate.” Mr. Scholes added regarding NPAs, “You will see more and more of these in the future.”
Steven S. Scholes, SEC Defense, White-Collar & Securities Defense
“CalPERS Probe Hints at SEC’s New To-Do List”
Law360, January 7, 2011
Steven Scholes contended that an SEC investigation of whether California adequately disclosed the health of its pension plans to state bond investors means that, “for the first time in history, the SEC is taking a close, close look at municipal bond offerings, and issuers are in grave danger.” He added that “we may be on the cusp” of the SEC going after state and local officials who manage pension plans and make faulty disclosure statements.
Steven S. Scholes, SEC Defense, Trial, White-Collar & Securities Defense
“Business Litigation: A Look into 2011”
Compliance Week, January 4, 2011
Steven Scholes singled out two types of business litigation for more activity in 2011. The first is lawsuits against banks by institutional investors, where he expects that a “tremendous amount of activity … is really just now starting to work its way through the system.” The second is insider trading claims against analysts and consultants who research proprietary company data and sell it to investors without permission. Noting that this would extend the reach of securities laws, Mr. Scholes anticipates “a very interesting series of investigations and lawsuits as to how this all plays out.”
Steven S. Scholes, SEC Defense, Securities Litigation, Trial, White-Collar & Securities Defense
2010
“SEC’s Disclosure Demands Put Funds in Catch-22”
Ignites (A Financial Times Publication), December 2, 2010
Steven Scholes urged the SEC to “avoid the temptation” to address mutual fund and other investment company disclosures concerning derivative use and risk by using enforcement proceedings rather than rulemaking. Such disclosures have until now been made using the SEC’s “plain English” rule, which the agency now criticizes as inadequate. “The SEC should issue clear rules … and avoid subjecting funds to the dilemma of making disclosures that are deemed, with the clarity of perfect hindsight, either ‘generic’ or ‘technical’ after the fact,” Mr. Scholes wrote.
Steven S. Scholes, White-Collar & Securities Defense
“Jersey Sure? The SEC Gets Tough on Public Fund Accounting”
Plansponsor, November 2010
Steven Scholes said the SEC’s securities fraud charge against the state of New Jersey for misleading municipal pension securities investors by masking pension underfunding was somewhat unusual because there is little SEC enforcement of municipal offerings. Mr. Scholes asserted that the SEC’s message has been heard, and that municipal issuers in the future will likely ensure that they have appropriate, reasonable, defensible assumptions for calculating their pension liabilities. He also pointed out, however, that any past problems with accounting for these liabilities (which are particularly acute because of the financial stress governmental entities currently face) could still subject municipalities to SEC investigation.
Steven S. Scholes, SEC Defense, White-Collar & Securities Defense
Steven Scholes was quoted August 18 by Bloomberg News on the state of New Jersey’s settlement of claims by the Securities and Exchange Commission that the state misled municipal bond investors by failing to disclose that its two biggest pension plans were underfunded. Regarding the possibility of additional SEC action against other states, Mr. Scholes said that “the only thing we can conclude here is that there is certainly more to come. The market is mammoth. It has been growing over time and has never really been subject to any sort of significant, comprehensive SEC scrutiny in the past as it is undergoing today.” Mr. Scholes added, "The SEC may seek to use fraud cases to encourage public officials to improve the quality of the information they provide. The SEC can drive more robust disclosures through this type of enforcement which is sure to make the municipal bond market sit up and take notice."
Steven S. Scholes, SEC Defense, Trial
Steven Scholes was quoted by Dow Jones Newswires/The Wall Street Journal on June 2 regarding the Security and Exchange Commission’s civil charges against several current and former executives of Diebold Inc. related to alleged financial fraud. Mr. Scholes, who represents former company CFO Gregory Geswein, stated, “We are deeply disappointed that, almost five years after Mr. Geswein voluntarily left Diebold of his own initiative, the SEC has made these stale allegations.”
Steven S. Scholes, SEC Defense, White-Collar & Securities Defense
Steven Scholes is mentioned in a March 6 Wall Street Journal profile of Thomas Quinn, who according to the story has been involved in securities fraud for more than five decades. Mr. Scholes recalled that, when he was deposing Quinn while serving as a receiver for the SEC in a 1996 Quinn-related case, a plane flew by towing an advertising banner that read, “Leave Tommy Alone.” Mr. Scholes said he couldn’t help but laugh as Quinn read the message out loud.
Steven S. Scholes, SEC Defense, Securities Litigation, Trial
Steven Scholes was quoted by Law360 on January 19 concerning the almost $600 million in fines and settlements paid by companies in 2009 to settle the ten largest stock option backdating cases, a development that may indicate that major options backdating litigation is drawing to a close. “My sense is that the bulk of the settlements have been made public already,” Mr. Scholes said. “These things kind of go in waves, and I think most of these have moved through the system.”
Steven S. Scholes, SEC Defense, Trial
Steven Scholes spoke to Law360 (January 14) about the new powers of the Securities and Exchange Commission’s Enforcement Division attorneys. “I anticipate that it will be a sea change in the enforcement program and will lead to the Division of Enforcement bringing many more cases that otherwise it might not have,” Mr. Scholes said, referring specifically to changes that will enable the SEC to gain greater cooperation from informers and companies. He added about the new SEC cooperation procedure: “My anticipation is that people will take them up on it and it will expedite their investigations and help them bring cases.”
Steven S. Scholes, SEC Defense, Trial
Steven Scholes was among the lawyers included in the January 13 announcement by Law360 on the formation of its 2010 securities editorial advisory board. Members of the board are leading securities law professionals who will provide guidance to Law360 regarding important issues and developments in the field. Mr. Scholes heads the Firm’s SEC defense group and subprime and credit markets litigation group, leads the Trial Department in the Chicago office, and is a former lawyer in the SEC’s Enforcement Division.
Steven S. Scholes, SEC Defense, Securities, Trial
Steven Scholes was quoted in PlanAdviser.com (January 11) examining how financial regulators view investment adviser use of social networking. He said the SEC would view as advertising an adviser's use of electronic media for stock tips, noting that, with the Internet's speed, "it would be very easy to slip very unknowingly...into making communications that constitute advertising without realizing it." Mr. Scholes suggested that investment firms either tell employees "you cannot use social networking for anything having to do with the firm," or require preapproval of social networking use ("because these communications are so fast, pragmatically it's very difficult to implement a policy like that," he noted), or allow social networking use only with clients and not the general public. "All of these approaches carry regulatory approval, just in different degrees," Mr. Scholes said, and can be an "insurance policy" to show regulators that proper procedures were used.
Steven S. Scholes, SEC Defense, Trial
2009
Steven Scholes was cited in an August 27 Plan Advisor story about how the Securities & Exchange Commission and other financial regulators view the use of social networking sites by financial advisors and brokers under advertising and communication rules. Mr. Scholes stated his belief that the SEC would take the position that advertising is advertising, regardless of the medium. However, a problem could arise if what an SEC lawyer considers advertising is not seen that way by employees of financial firms.
Steven Scholes was quoted extensively in Compliance Week (June 30) about the substantial increase in class action securities lawsuits related to the financial crisis. Mr. Scholes stated that such an increase “was only to be expected given the market dislocations we’ve had over the last 18 months or so,” adding that “a tremendous amount of litigation” involves structured financial products such as collateralized debt obligations. He also predicted there is “a significant likelihood there will be more” litigation over credit default swaps. An increasing number of lawsuits are targeting asset management firms, and Mr. Scholes attributed that to the “unprecedented size, scope and number of the alleged Ponzi schemes, which seem to be coming to light as a result in the decline in asset values. I think that wave is still building and has yet to crest.”
Steven S. Scholes, Class Action, Securities Litigation, Trial
Steven Scholes addressed in a June 8 Law360 story the breach of contract lawsuits that several monoline insurers have filed against financial institutions over subprime-related losses. He stated his belief that, because the insurers are suing for breach of contract, they could win on their misrepresentation claims, and even if their fraud claims are not upheld, they could help fend off claims from investors. "It's almost a backdoor defense of the claims made in the class case" against the insurers, Mr. Scholes said. He added that getting a court to recognize that they made investment decisions based on misstatements from CDO securities originators and marketers could provide a significant boost in the insurers' public perception.
Steven S. Scholes, Subprime and Credit Markets, Subprime and Credit Markets Litigation, Trial
Steven S. Scholes was quoted on January 14 by Law360 in an article regarding the decreasing number of securities litigation cases filed over the past few years. Mr. Scholes noted that the 1998 Securities Litigation Uniform Standards Act (SLUSA) pushed securities class actions into federal courts, thereby eliminating many follow-on state court securities claims. "That phenomenon has made the process much more efficient," said Mr. Scholes. He noted, however, that the number of cases filed will likely increase due to the financial crisis. "I think that it's increasing and will continue to increase. And frankly, I don't think there's much doubt about that," he said.
Steven S. Scholes, Securities Litigation, Trial
2008
Steven S. Scholes was quoted on November 11 by Law360 in an article regarding the greater level of regulation expected under Obama's Securities Exchange Commission (SEC). Mr. Scholes noted that the current enforcement staff has suffered from low morale under Christopher Cox's leadership and from signals sent by the Bush administration. He added that while the number of cases pursued by the SEC has increased, the cases tend to be small and focused on individuals rather than companies. "A new chairman, for example, who has a more aggressive bent toward enforcement can certainly cause the current staff to be much more aggressive and robust," he noted. "I think that it is very easy to understand the case that additional regulation is needed given what we've been through this year to date," Mr. Scholes added.
Steven S. Scholes, SEC Defense, Trial
Steven S. Scholes was quoted in the June 11 issue of Fortune Magazine in an article regarding the Commonwealth of Massachusetts' claim that Phil Goldstein, a hedge fund manager, violated rules prohibiting the marketing of hedge funds to average investors. In response, Goldstein and his firm filed suit in March 2007 against the secretary of the Commonwealth, claiming that the secretary had violated Goldstein's right to free speech. Mr. Scholes noted that if Goldstein wins his case, changes will likely be made in how hedge funds raise capital. "You would see more advertising in every imaginable form, especially by smaller, less established, and possibly riskier firms that need more capital. It would benefit them much more than the big houses," he said.
Steven S. Scholes, SEC Defense, Trial
Steven S. Scholes was quoted in the April issue of CFO Magazine in an article regarding the unpredictably and complexity of going to trial in class-action shareholder lawsuits. As a partner in McDermott Will & Emery's Trial Department, Mr. Scholes noted that despite uncertainty, the rising costs of settling have made going to court more attractive. "The tremendous increase in the dollar value of settlements has greatly altered the economics of securities class cases. You can see how the balance would tip toward going to trial, if you have a good defense," he said.
Steven S. Scholes, Class Action, Trial
2007
Steven S. Scholes was quoted in the November/December issue of Corporate Board Member regarding updates on directors' and officers' insurance. Mr. Scholes discussed how although there is no rule to how much D&O coverage a company should carry, many organizations are underinsured. Mr. Scholes stated that your company should ask, "how it decided what limits to purchase and what the typical settlement values are for comparable-size companies in the same industry."
Steven S. Scholes, Insurance, Trial
Steven S. Scholes completed a Q&A on October 8 published by Securities Law360 regarding his work in white-collar and securities law.
Steven S. Scholes, SEC Defense, Trial
Steven S. Scholes was mentioned in the September issue of Leading Lawyers Network Magazine in recognition of being named a top business lawyer in Illinois. This recognition is based on peer nominations.
Steven S. Scholes was quoted in an August 1 article published by CFO Magazine regarding the effect of the Sarbanes-Oxley Act on the relationship between the Securities and Exchange Commission (SEC) and other key players. Mr. Scholes notes that the relationship with the Financial Accounting Standards Board (FASB) is particularly complicated due to a history of being at odds with each other. "It is eminently clear that the SEC is insisting on a seat at the table during the process through which FASB members are nominated. What is not as clear is how the SEC will use that seat," Mr. Scholes said.
Steven S. Scholes, SEC Defense, Trial
Steven S. Scholes was quoted in a February 22 article published by CFO.com regarding an NYSE trading specialist who was acquitted of fraud charges in the Southern District of New York. Mr. Scholes commented on SEC Rule 10b-5, particularly its use by prosecutors to charge individuals who deceive or mislead financial statement readers. He explained that 10b-5 is "the heart and soul" of the federal antifraud provision.
Steven S. Scholes, Corporate Responsibility and Governance, Trial
2006
Steven S. Scholes was quoted in the August edition of the Chicago Lawyer in an article regarding the decline of securities class action suits. Mr. Scholes commented on how the decline may be based on the fact that most of the major cases have settled and as a result of the Sarbanes-Oxley Act as well as a series of high profile scandals, companies have been deterred from engaging in fraudulent behavior. "Some of the larger, more well-publicized cases we've been reading about may be working their way through the system and returning us to a more normal state of affairs," Mr. Scholes said.
Steven S. Scholes, SEC Defense, Trial
Steven S. Scholes was quoted in a May 2 article published by Securities Law360 regarding McDermott's close link between the firm and federal regulators. Mr. Scholes, a former attorney to the SEC's Division of Enforcement, discusses how these relationships often help their clients avoid a trial altogether. "We value very highly the credibility that we have with government lawyers. Much of our practice is against the government or regulatory agencies and we greatly guard the reputation we've developed with them over the years," Mr. Scholes said.
Steven S. Scholes, SEC Defense, Trial
Steven S. Scholes was mentioned in the March edition of The American Lawyer in an article regarding former stock trader Daniel Calugar's agreement to pay the Securities and Exchange Commission $153 million in a mutual funds settlement.
Steven S. Scholes, SEC Defense, Trial
Steven S. Scholes was mentioned in the February edition of Chicago Magazine in recognition of being named among the top five percent of securities litigation attorneys by Illinois Super Lawyers 2006 . This recognition is based on peer nominations and independent research.
Steven S. Scholes, SEC Defense, Trial
Steven S. Scholes was mentioned in a January 11 article published by The New York Times regarding former stock trader Daniel Calugar's agreement to settle the Securities and Exchange Commission's accusations that he improperly traded mutual funds after market hours.
Steven S. Scholes, SEC Defense, Trial
2005
McDermott was featured in four cases and one M&A deal in the Crain's Chicago Business's list of 2005's big litigation and deals published on September 19. Lazar Raynal (Pritzker v. Pritzker), Rick Meyer (Lorillard Tobacco Co. v. Chester Wilcox & Saxbe LLP), Steven Scholes (SEC v. Calugar), Mike Pope and Christopher Murphy (Oshana v. Coca-Cola Co.), all trial partners based in Chicago were mentioned in the litigation list. John Tamisiea and Michael Fayhee were mentioned in the deal list for Gardner Denver Inc.'s purchase of Thomas Industries Inc.
Michael R. Fayhee, Derek J. Meyer, Christopher M. Murphy, Michael A. Pope PC, Lazar P. Raynal, Steven S. Scholes, John P. Tamisiea, Corporate, Mergers & Acquisitions, Trial
Steve Scholes was quoted in the May issue of CFO Magazine on the increased cost for companies to settle securities lawsuits. In 2004 the number of suits settled was up 23 percent from 2003 but the total cost to settle the case more than doubled to $5.5 million. The larger settlements are mostly due to the larger losses incurred by the plaintiffs and pressure to settle quickly to focus on regulatory issues. "The claimed damages are massive," commented Mr. Scholes
Steven S. Scholes, Securities, Securities Litigation, Trial
Steve Scholes was quoted in the January issue of D&O Advisor regarding Sarbanes-Oxley and barring defendants in fraud cases from serving as directors or officers of public companies. The D&O bar from serving as an officer or director may last five, ten or 15 years, or a lifetime. It's a "career death sentence" Mr. Scholes commented. Even a five-year bar could stigmatize executives or board members for the rest of their working lives, he continued. There are currently no statistics on the number of directors and officers who resist a D&O bar. Although it is believed that such cases are rare, Mr. Scholes predicts they are likely to grow, "We're at the precipice of a change."
Steven S. Scholes, Corporate Responsibility and Governance, Trial
2002
Steven Scholes was quoted on August 8 in BestWire regarding corporate officers signing off on the veracity of their company's financials. Mr. Scholes explained the penalties, although not criminal, of this Securities & Exchange Comission requirement. "Any time an officer makes a statement to the public that is later deemed misleading, the signer is exposed to the federal securities law." He also commented that the law increases the penalties for white-collar crimes, including a $5 million fine and up to 20 years in prison.
Steven S. Scholes, Corporate Responsibility and Governance, White-Collar & Securities Defense
1998
Steven S. Scholes was quoted in an April 19 article published by The Chicago Tribune regarding Monetta Financial Services' president, Robert Bacarella, being accused of securities fraud by the SEC. Mr. Scholes commented on the unprecedented case, which is the first case that involves personal trading by fund directors. "I think [SEC officials] are chilling people [who serve as fund directors] right now. The problem is it's patently unfair," he said.
Steven S. Scholes, SEC Defense, Trial
Steven S. Scholes was quoted in a March 3 article published by The Wall Street Journal regarding the SEC case against Monetta Financial Services for passing along new stocks to the personal brokerage accounts of three of its funds' directors. Mr. Scholes commented on this unprecedented case, stating that "we believe the case addresses industry-wide issues that the commission should address by rule."
Steven S. Scholes, SEC Defense, Trial
1997
Steven S. Scholes was quoted in a November 14 article published by The Daily Business Review regarding Randall J. Fons' appointment as the new director of the Southeast regional office of the Securities and Exchange Commission. Mr. Scholes has had several cases against Mr. Fons. "He knows the securities laws inside and out and is appropriately aggressive...He pursues cases very hard, and yet at the same time he is willing to listen to reason and mitigation factors and is easy to get an audience with," Mr. Scholes said.
Steven S. Scholes, SEC Defense, Trial
Steven S.Scholes was quoted in an October 13 article published by Best Week regarding Delaware Insurance Commissioner Donna Lee H. Williams filing suit against National Heritage Life Insurance Co. in order to recoup policyholders' losses. Mr. Scholes stated that his client, Ms. Williams, "filed a 17-count suit against 59 defendants in the $400 million collapse of National Heritage Life."
Steven S. Scholes, SEC Defense, Trial
1995
Steven S. Scholes was mentioned in a December 1 article published by Mealey's Litigation Report regarding a federal magistrate judge's decision that a receiver be appointed to supervise the loan servicing process of National Heritage Life Insurance Co.
Steven S. Scholes, SEC Defense, Trial
Steven S. Scholes was quoted in the December edition of the Securities Regulation & Law Report regarding the involvement of charitable organizations in a Ponzi scheme resulting in failing to win the U.S. Supreme Court review. Mr. Scholes has been appointed as receiver. "The far reaching effects of the decision below are exaggerated and unfounded, however even if this court were to give credence to those claimed effects, Petitioners' desired protection from the decision below must come from the Illinois legislature, not from this Court," Mr. Scholes said.
